FTC and Affiliate Network Liability

The Federal Trade Commission (FTC) announced today that it has resolved its first deceptive advertising action against an entity described as an “Affiliate Network.” The settlement with the COPEAC network (known to affiliate marketers as a “CPA Network”) was the first of its kind since the FTC began cracking down on false or deceptive advertising by affiliate marketers. Whereas previously the merchant was held liable for the actions of the affiliates, this time the affiliate network itself was implicated both for its own actions and those of its affiliates.

Some key takeaways from this announcement:

The actions were regarding health-related claims on affiliate sites (acai berry and colon cleanse) that were made to look like news sites.

The actions were instituted as a result of consumer complaints.

The actions were settled by a consent decree that the FTC and the defendants entered into rather than a full litigation of the cases.

Affiliate Network was defined as “any person who provides any Defendant with Affiliates for an Affiliate Program or whom any Defendant contracts with as an Affiliate to promote any good or service.” This would mean that CPS networks are included as well as CPA networks.

“Endorsement” was defined as “any advertising message…that consumers are likely to believe reflects the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser.”

“Material connection” was defined as “any relationship that materially affects the weight or credibility of any endorsement and that would not reasonably be expected by consumers.”

As in past FTC documents, we see the language that the “endorser” must disclose “clearly and prominently” the “material connection.“

The Defendants will have to submit to the FTC certain documentation for any company that they might have an ownership interest in that would be impacted by the settlement compliance obligations for the next twenty years.

Although this situation was definitely an egregious one because it was clearly false advertising of unproven claims and was made to look like legitimate news, it does raise issues about the extent to which affiliate networks will be liable alongside affiliates and merchants who engage in these practices. In addition, it reiterates some of the things that the FTC has said in the past. Namely, the FTC is not out looking for sites that fail to disclose affiliate links. Instead, it is relying upon consumer claims to bring the sites to their attention. When the sites are brought to their attention, the FTC looks to the issues of “clear and prominent” disclosure of material relationships.

Do you think that this will bring about a change in the way that affiliate networks work with affiliates and merchants? At a minimum, I think that the networks need to:

Include disclosure language in their network agreements

Link out to the official FTC guidelines on the issues

Monitor the types of merchants that are joining their networks, in particular those most susceptible to false advertising claims like health and beauty merchants

Stay clear of creating landing pages and PPC ads themselves that might trigger closer scrutiny of themselves rather than just the actions of the affiliates.

The water is still murky but we all need to do what we can to make sure that we are not on the receiving end of one of these FTC actions because they threaten not only current revenue but apparently the business that we do for decades to come.

I am terrified by the FTC (thanks to Frank Kern) even though I disclose “clearly and prominently” the “material connection.“ when required. But who knows if the FTC thinks it’s good enough? The big take away from this excellent article is if everybody leaves your site happy then you should be okay until the networks close up shop removing the affiliate business model from the face of the earth.